Work hard. Spend less. Invest smart.

Menu

Spin Master Corp: A Gem With Great Growth Potential

Spin Master Corp’s (TSX:TOY) 10% pullback in the last five days due to the bad press from Hatchimal complaints could be a long-term buying opportunity. After all, the children’s entertainment company is not a one-trick pony; it has a diverse portfolio of products. Further, it has passionate and capable management. It has won multiple awards across different product categories and has made successful acquisitions.

The pullback is due to, in my opinion, a temporary issue on one of its products, Hatchimals. There have been complaints from upset parents when their children could not hatch the toys from their eggs. And this is just overall bad press for the company. However, it’s important to note that there have been over a million hatches around the globe.

The company responded quickly by doubling its Customer Care team to answer calls and emails in a timely manner. As well, if troubleshooting proves to be futile for the defective products, Spin Master will ship a replacement Hatchimal within 2 days.

As a result of the pullback, I think Spin Master is now attractively valued at C$32, which translates to a forward multiple of 17.6 for the high-growth company.

Company overview

Since its IPO in July 2015, this little gem has appreciated nearly 78% despite the pullback.

Spin Master is a leading global children’s entertainment company with a diverse portfolio across a variety of categories. Hatchimals is only one of its many products.

The company’s products are reported across 5 categories with a gross revenue of US$878.4 million in the first three quarters.

Source: Author; Data from corporate filings

Some of its best known award-winning brands include Zoomer™ Dino, Bakugan Battle Brawlers™, and Air Hogs®. Additionally, since 2005 Spin Master has received 82 TIA Toy of The Year nominations and won 18 times across different product categories.

Not only does Spin Master develop and create global entertainment properties, characters, and content, but it also monetizes that content via product creation, sale, and licensing.

So far, Spin Master has produced 6 television series, including its current hit, PAW Patrol, which is broadcasted in over 160 countries and territories.

Management and company values

The co-founders and co-CEOs of Spin Master, Anton Rabie and Ronnen Harary, are childhood friends. They are roughly in their mid-40s with lots of passion in what they do. They started out selling their first product on the street and to specialty retailers 22 years ago.

The company core values are:

Creating innovative fun stuff

Entrepreneurial spirit

People having fun working and growing together

Partnerships – Being successful together

Ideas – No matter where they come from

Integrity – Always, No fooling

Profitability

Spin Master has a net margin of 17.5%. It grows by innovation, acquisitions, and organic growth. In 2015, it had a return on equity (ROE) of over 130%. And in the last 12 months, its ROE was more than 34%. Since 2014, it has maintained a return on asset of between 11 and 15%.

Conclusion

Obviously, Spin Master’s short public history might deter some investors from investing. However, I believe the Hatchimal issue is a temporary one and that it has created an opportunity for long-term investors looking for growth.

Technically, the next support level is in the $28-29 area. Interested investors should keep watch and consider buying the shares on the Toronto Stock Exchange where the trading volume is higher than the OTC market issue.

The core of this article appeared first in my premium service, from which you can access my top monthly Canadian and U.S. ideas and other goodies.

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: At the time of writing, the author owns shares in Spin Master.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

Get Exclusive Articles from me on Seeking Alpha

Access my portfolio of high-quality U.S. and Canadian dividend stocks.

Real-time updates of when I buy or sell from this portfolio.

Get best ideas of the top 3 dividend stocks from my watchlist. Updated each month.